DBRS Confirms Ratings on COMM 2013-CCRE11 Mortgage Trust and Changes Trends on Two Classes

DBRS Limited (DBRS) has today confirmed the following classes of Commercial Mortgage Pass-Through Certificates, Series 2013-CCRE11 (the Certificates) issued by COMM 2013-CCRE11 Mortgage Trust:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class A-M at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

Trends on Classes B and C have been changed to Positive from Stable. The trends on the remaining classes remain Stable. DBRS does not rate the first loss piece, Class G.

The rating confirmations and trend changes reflect the improved performance of the transaction’s underlying collateral, which have displayed a weighted-average (WA) increase in net cash flows (NCF) of 14.9% since issuance in October 2013. The collateral consists of 46 fixed-rate loans secured by 82 commercial properties. The pool is concentrated based on loan size as the top ten loans represent approximately 64.2% of the current pool balance with the largest loan, the Miracle Mile Shops (Prospectus ID#1), representing 11.6% of the current pool balance. According to YE2015 financials, the pool had a WA debt service coverage ratio (DSCR) and WA debt yield of 1.85 times (x) and 11.3%, respectively. As of the August 2016 remittance, the pool has an aggregate balance of $1,253 million, representing a collateral reduction of approximately 1.3% since issuance as a result of scheduled loan amortization.

There are currently eight loans on the servicer’s watchlist, representing 9.1% of the current pool balance. Six of those loans, representing 6.0% of the pool, have been flagged as a result of low DSCRs; however, as of YE2015 financials, these loans report a WA DSCR and WA debt yield of 1.19x and 9.02%, respectively. The Shoppes at Ives Dairy (Prospectus ID#41, 0.4% of the current pool) loan was flagged for failing to meet a predetermined rollover reserve balance and the Forrest Gallery loan (Prospectus ID#31, 0.7% of the current pool) was flagged for its exposure to Hastings Entertainment (11.6% of net rentable area (NRA) and 8.9% of base rental revenue), which recently announced corporate bankruptcy and liquidation of all stores. The Hastings Entertainment lease expires in January 2017 and, according to the servicer, the borrower has already identified replacement tenants for that space once it becomes vacant.

The One & Only Palmilla loan (Prospectus ID#3, 7.2% of the current pool balance) is secured by a 173-room luxury resort located in Mexico’s Baja Peninsula, situated between San José del Cabo and Cabo San Lucas. The loan was previously watchlisted after being affected by Hurricane Odile in September 2014, which inflicted widespread damage to the region and the subject property. The borrower’s insurance policy was comprehensive, providing full coverage for damages and repairs as well as business interruption proceeds. The property reopened in April 2015, featuring a number of new elements such as a new steakhouse, completely refurbished guest rooms and suites, new adult outdoor lounging areas with panoramic ocean views as well as a new spa and fitness center. The May 2015 servicer site inspection report, conducted shortly after the subject reopened, confirmed the excellent condition of the subject. According to the March 2016 Smith Travel Research report, the property had a trailing 12-month occupancy rate of 66.8%, average daily rate (ADR) of $1,030 and revenue per available room (RevPAR) of $687, which is comparable with a RevPAR of $681 in August 2014 (immediately prior to the damage) and represents an increase of 9.7% over issuance RevPAR of $626. Additionally, the property continues to lead its competitive set, which displayed an average occupancy rate of 60.1%, ADR of $919 and RevPAR of $553. As of YE2015, the loan had a DSCR of 3.05x and a debt yield of 15.4%; however, these figures did not represent a full year of continuous operations as the subject was closed for renovations until April 2015. Given its strong recent performance, leading market position and excellent property quality, DBRS expects the property to continue to report strong financials at YE2016.

The Parkview Tower loan (Prospectus ID#12, 2.7% of the current pool balance) is secured by a 220,190 square foot office property located in King of Prussia, Pennsylvania, 18 miles northwest of Philadelphia, within a mixed-use complex which also includes the Valley Forge Casino, two hotels and a convention center. This loan was added to the servicer’s watchlist in August 2015 because of a low DSCR resulting from a decline in occupancy to 82.7% in March 2015 from 93.2% at issuance. The decline in occupancy was a result of several smaller tenants vacating the property, most notably Tekni-Plex, Inc. (representing 5.0% of NRA), which vacated at lease maturity in YE2014. Leasing momentum picked up in 2016 with four tenants (representing 7.1% of NRA) taking occupancy at the property between May and July, resulting in a current occupancy rate of 91.1%. The servicer confirmed that Arcadia University (representing 5.6% of NRA) vacated its space upon lease expiration in August 2016; however, according to the borrower, its space will be assumed by new tenant, AmeriGas Propane, which will subsequently increase its footprint at the subject to 10.3% of NRA. As of YE2015, the loan’s DSCR was 1.03x, decreased from the YE2014 figure of 1.12x and the DBRS underwritten figure of 1.06x. The Q1 2016 annualized financials report an improved DSCR of 1.16x owing to a decrease in expenses. Loan performance is expected to stabilize further as rental income from the recently signed tenants is realized.

At issuance, DBRS assigned investment-grade shadow ratings to three loans: the One & Only Palmilla, One Wilshire (Prospectus ID#6, 6.4% of the current pool) and 200-206 East 87th Street (Prospectus ID#11, 2.8% of the current pool). DBRS has today confirmed that the performance of these three loans, representing 16.4% of the current pool balance, remains consistent with investment-grade loan characteristics and has confirmed the shadow ratings.

The ratings assigned to Classes C through F differ from the higher rating implied by the quantitative model. DBRS considers this difference to be a material deviation and, in this case, the rating reflects that sustainability of loan performance trends has not been demonstrated. The improvement in performance of the underlying collateral to date is reflected with the aforementioned trend changes to bonds higher in the capital structure.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool. The September 2016 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.